To avoid major downturn, MPC must cut rates in the next 2-3 months

Commenting on the choices facing the Monetary Policy Committee (MPC) at its September 2008 meeting next Thursday, David Kern, Economic Adviser to the British Chambers of Commerce, said:

“Most analysts expect the MPC to keep rates on hold at five per cent on Thursday.  This is despite the fact that the UK economy is very probably in technical recession already, and the risks that the situation would worsen have increased. House prices have recorded annual falls in excess of ten per cent, adding to banking sector bad debts, and weakening the banks’ ability to provide vital finance to hard-pressed businesses. Recent figures also show declines in UK manufacturing and construction output, and in business investment.”

“We understand the MPC’s concern over inflation. But the MPC’s own analysis suggests that inflation will peak in the next 2-3 months, and will fall sharply next year. A major recession can still be avoided, but the MPC cannot wait too long before acting. To reduce the threat of a severe economic downturn, the MPC must start cutting interest rates in October or November.”

Ends

Media Contacts:

Fiona Cunningham
Tel: 020 7654 5812
Email: f.cunningham@britishchambers.org.uk

OR

Sam Turvey
Tel: 020 7654 5813
Email: s.turvey@britishchambers.org.uk

Notes to Editors:

The British Chambers of Commerce (BCC) is the National Voice of Local Business.
The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce serving business across the UK, which employ over five million people.